Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Friday, August 26, 2005

Oil Prices:
Experts vs. the Futures Market

From Reuters, [thanks to MA for this story]

A Reuters poll of industry analysts this week showed the mean average of oil price forecasts for 2006 rising above $50 for the first time.

The findings of the survey of 28 analysts forecast U.S. crude averaging $50.49 a barrel in 2006, with Goldman having the highest forecast of $68.

Compare that average and range with the futures market, where the equilibrium prices for 2006 range between $66 and $69. [h/t to Tyler Cowen for his posting and this link]

If those 28 analysts are so smart, why is the futures market so dumb? What do they know that people actually having to bet their own money on the future do not know?

And most importantly, if they're right, why haven't they taken enormous positions against the prevailing futures market prices and driven those prices down toward $50/barrel?

This is such a wide divergence, it will be a very good test of the abilities of Reuters' stable of analysts.
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